There is more to setting up a shop than a good product, March 10, 2006, 6C.

You have just come up with THE perfect business idea—a product or service that you think countless people will want and demand.  It is time to get a business banking account and lease a building, right?  Not yet.

Businesses exist to conduct exchanges with others.  Individuals and organizations outside of the firm exchange their resources for the products and/or services of the business.  Without those exchanges, businesses will be unable to cover costs and meet expenses and will eventually go out of business. 

The product or service that a firm offers is critically important in creating exchanges, but equally important are the prices that the firm charges, the ways that consumers are made aware of and encouraged to trade with the firm, and where and how to get the product or service to the consumer.   In marketing, those ideas are known as the marketing mix—product, price, promotion, and place.

A good product or service satisfies needs or wants.  Necessity goods and services meet basic human needs (e.g., food, clothing, shelter, medical service, etc.).  Luxury goods and services go beyond basic needs.  An expensive dinner at a fine restaurant satisfies basic hunger needs, but might also satisfy self-esteem and ego needs.  Because there is usually a premium paid for luxuries, their demand is typically affected more by price changes than necessities.  

There is no magic formula used to determine prices.  Lower prices create more demand than higher prices, but the profits gained from each sale are also lower.  A higher price might bring in greater profit on items sold, but fewer consumers will be willing and/or able to pay higher prices.  The trick is to find a price that is low enough to generate demand, but high enough to cover costs and provide enough profit to make the venture worthwhile.

If no one knows that your firm exists or what you offer, you may as well not exist.  Advertising and promotional activities are needed to create exchanges with consumers.  It is important that consumers recognize your firm as the place to fill needs and wants.  Incentives and promotions should be used to introduce, remind, encourage, and compel consumers to trade with your firm. 

Exchanges with consumers need to occur in places and at times that are convenient for them.  Care should be taken when choosing locations for sales, service, and supply outlets and setting times of operation.  Visibility, convenience of location, and proximity to target markets should all be considered when choosing a location.  For firms that distribute their offerings across a wide geographical area, locations with access to proper distribution systems should be selected. 

To succeed in your venture you must offer a desirable product or service, make consumers aware of your offerings, supply consumers at the times and places they require, and charge prices that are deemed attractive, yet profitable.  So before running out a setting up a business, spend the time and resources needed to thoroughly evaluate all aspects of the marketing mix. 

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